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What is the Check 21 Act and why was it passed?

Through the end of the 20th century, final clearing of checks in the United States was still done physically – even though much of the settlement procedure was electronic, the original paper checks still had to be returned to the account-holder’s bank at the end of the process. To accomplish this, the Federal Reserve Bank and the banking industry itself operated a fleet of more than 100 private jets to transport checks across the country each night after the end of business.

However, the events of September 11, 2001, exposed a weakness in the system: As you may remember, all air travel in the country was shut down for a week after the attacks. This caused a small crisis in the nation’s financial system as checks backed up, eventually requiring emergency intervention by the Federal Reserve. To prevent a repeat of that situation, in 2003 Congress passed the Check 21 Act, which required fully electronic clearing using check images, instead of the original paper checks.

At the time, there was considerable public concern that switching to fully electronic clearing was a ploy to get rid of “float” – the day or two that it takes between the time you write a check and the time the money actually comes out of your account. Some also worried that removing the paper checks would confuse people who were used to receiving them back with their monthly bank statements. (If you’re really interested, a copy of the House subcommittee debate on the legislation can be found here, and many of these issues are discussed.)

At any rate, the final version of Check 21 gave the same legal standing to a scanned image of a check as to the original paper check itself. That subtle but important change meant that not only could banks exchange the images between themselves – customers could also deposit an image instead of a paper check.

Since the first remote deposit capture systems made their debut in 2004, many variations of the service have evolved, and the necessary computer hardware has improved and become less expensive – making the technology available to more and more Americans. To see if remote deposit capture makes sense for you, see our guides on types of remote deposit and choosing the right check scanning device.

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The Check 21 Act was passed by Congress in 2003, partly in response to the terrorist attacks of Sept. 11, 2001. The shutdown of all air travel had an unforeseen impact on the check clearing process and prompted a shift toward electronic clearing.